Tesla is now facing its most dangerous adversary yet, and it could be proof that buying SolarCity was a huge blunder

Wal-Mart solar roof fire Indio, California

Wal-Mart v. Tesla, complaint

A cleanup crew works through the ashes of a Tesla-managed solar roof fire at a Wal-Mart in Indio, California.

  • Wal-Mart claims in a new lawsuit that Tesla was negligent in operating and managing 244 solar roof contracts it had with the retailer.
  • In at least 7 cases, according to Wal-Mart's complaint, Tesla's negligence resulted in fires. Those fires, in turn, resulted in store closings and millions in lost merchandise.
  • It's likely none of this would have happened if Tesla hadn't acquired SolarCity, which some critics said was a mistake in the first place.
  • Now, Tesla is facing its most powerful legal adversary ever at a time when company resources are wearing thin.
  • Tesla did not respond to Business Insider's repeated requests for comment.

Tesla is now in the ring with what is likely the most dangerous adversary in its history -Wal-Mart.

In a new lawsuit, the giant retailer accuses Tesla of negligence in its management of solar roofs at over half a dozen Wal-Mart stores.Advertisement

As of November of last year, no less than 7 Wal-Marts with Tesla owned and managed solar roofs have caught fire, resulting in millions of dollars worth of damaged merchandise and store closings. One Wal-Mart in Beavercreek, Ohio was closed for eight days following a fire that sparked from Tesla's solar panels.

In its complaint, Wal-Mart says that Tesla offered no explanation for why these panels were simply combusting. The suit also states that Tesla had no accurate drawings of the solar panels, and no processes or employees trained in inspecting or fixing them. In fact, according to the suit, Walmart employees had to show Tesla employees where there were cracks and temperature issues on the solar panels (which again, Tesla owned and operated).

All of this could have been avoided had Tesla not committed what some on Wall Street consider its most critical miscalculation - the acquisition of SolarCity in 2016.

If you know anything about how Tesla deals with fixing its solar panels, email this reporter at llopez@businessinsider.com.

Original SolarCity sin

Tesla's acquisition of Solar City was an all-stock deal that, according to Tesla CEO Elon Musk, would turn Tesla into a vertically integrated renewable energy juggernaut.But that's just what Musk was saying. All over Wall Street analysts were more circumspect. SolarCity - helmed by Musk's cousin, Lyndon Rive - was going bankrupt and heavily in debt in 2016. Just before Musk announced that he was offering to buy it Goldman Sachs said SolarCity was the "worst positioned" for growth in its sector. Ultimately, the company added another $700 million in cash burn per quarter to Tesla's already strained balance sheet. Advertisement

But that didn't matter. Musk - who was both on the board of SolarCity and running Tesla - got the deal done. Since then, SolarCity has been a money suck - experiencing rounds and rounds of layoffs and failing to sell its much anticipated solar roofs and PowerWalls in any meaningful way. Only 12% of solar energy installers surveyed by the North American Board of Certified Energy Practitioners even carry the PowerWall.

And now it has drawn the ire of - of all juggernauts - Wal-Mart, which started working with SolarCity back in 2010. Wal-Mart's complaint spent some time examining this controversial deal, and claims that Tesla inherited SolarCity's incompetence and amplified it. Tesla's inspections of Wal-Mart's properties revealed 157 action items requiring repairs or replacements of systems of components as of earlier this month, according to the complaint.

And Wal-Mart thinks that count is low. That is, in part, why it "de-energized" its buildings -stopped using Tesla's product - after it ran into trouble.Advertisement

"On information and belief, the actual conditions are worse than as documented by Tesla," Wal-Mart said in its complaint, "based on Tesla's history of deficient and incompetent inspections, including Tesla's reliance on untrained, unqualified, and unsupervised personnel to install and maintain the systems."

Wal-Mart says this kind of negligence came from SolarCity and continued on with Tesla as part of a culture of defects and a desperation for cash which led Tesla to install systems way too fast. The lawsuit also accuses Tesla of filing reports that said Tesla had made repairs to Wal-Marts roofs when it had not.

Someone its own size

According to the complaint, Walmart seeks to break the 244 open contracts it has with Tesla, claiming Tesla violated its obligation "to install, operate, and maintain the solar panel systems safely, nonnegligently, and in accordance with prudent industry practices."Advertisement

Meanwhile, this may very well be the fiercest legal adversary Tesla has ever faced, and the company's legal resources are stretched as it is right now.

Tesla and Musk have faced legal challenges of all kinds. Some are small cases te- individuals asking the company to return deposits they put on cars they no longer want, customers with warranty issues, suppliers suing for backpay. Some cases are strange, like the case of Vernon Unsworth, the diver who is suing Musk for calling him a pedophile on Twitter. Back in May a judge ruled that the matter would go to trial on October 22nd.

Tesla has been sued by shareholders and run afoul of the SEC, but it has never had a corporate adversary as invested and determined as Wal-Mart. This could be tough for a company that sees a lot of legal turnover. Tesla switched its representation for the SEC suit a few times, for example. Back in February, this happened rather publicly when a high profile lawyer quit just a day or two after Musk made a statement that may have violated an SEC agreement online.Advertisement

In other words, this appears to the first time Tesla will truly need to have all of its legal ducks in a row. It did not tell its shareholders when Wal-Mart, obviously a huge customer, stopped using its systems. Tesla has SolarCity loans to pay, and potentially angry customers to answer to. In fact, everyone will want answers.

Here are a few questions we asked Tesla that the company did not respond to:
  • Did Tesla ever disclose the loss of Wal-Mart's business to shareholders?
  • Did Tesla ever disclose the loss of Wal-Mart's business to SolarCity bondholders?
  • Is Tesla concerned about possible class actions related to SolarCity roofs now?
  • Does Tesla have insurance that would cover s lawsuit like that?
  • Have other customers (homeowners or businesses) experienced fires like this?
This is all happening at a time when Tesla is weak, too. The company just had a disastrous second-quarter earnings release and Tesla's stock is down 32% for the year.Advertisement

On top of all of this are the reputational issues this lawsuit could raise for the company. This lawsuit is coming just as German rental car company nextmove, one of the largest Tesla fleet owners, canceled a $5.55 million order from Tesla. In a 24 minute video explaining his decision, nextmove CEO Stefan Moeller said that Tesla kept sending his company cars riddled with defects, and that it had no process for ensuring that those defects were tracked and taken care of.

"From our point of view Tesla has no process for a defect-free delivery," he said.

If you know anything about how Tesla deals with fixing its solar panels, email this reporter at llopez@businessinsider.com.Advertisement

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